22 Apr 2023

5 things you may not know about child benefit

Which? explains the quirks of the system and what parents could be missing out on by choosing not to claim

The number of families claiming child benefit has sunk to a record low, new figures show.

HMRC data revealed 7.7 million families claimed child benefit for 13.2 million children by 31 August 2022 - a drop of 0.6% (or 43,000) compared with the year before and the lowest since these figures were first produced in 2003.

Meanwhile, as many as 683,000 families opted out of receiving the payments in August 2022 compared to August 2021 - up 5% in a year.

The fall is likely down to the 'high-income child benefit charge', which was introduced in 2013. It kicks in when one parent has taxable income of £50,000 or more. The threshold hasn't changed in over a decade which means more and more people may be subject to it.

But there are also worries that parents may not be as clued up on the system thanks to the pandemic, when birth registrations were disrupted and child benefit forms may not have been handed out in hospitals.

Here, Which? explains some things you might not know abut child benefit including how contributing to a pension can help you avoid the tax charge and why it can make sense to claim even if you earn over £50,000.

1. Child benefit is paid for each child

Eligibility for child benefit is not means-tested. This means the payments you receive aren't based on how much you earn, but instead on how many children you're responsible for.

It is paid by the government to people responsible for a child or children under 16, or under 20 and in an approved form of education or training.

There's a higher rate for the eldest (or only) child, and additional lower rates for any younger children, but no upper limit for the number of children you can claim for.

In the 2023-24 tax year you'll receive £24 a week for your eldest or only child, and £15.90 for any additional children.

Find out more: use our child benefit rates and calculator to work out how much you’ll get

2. You might have to fill out a tax return

While child benefit isn't means-tested, you'll pay an additional tax charge if you or your partner has an annual income over £50,000. This is known as the 'high-income child benefit charge'.

This threshold is based on the individual income of the highest earner, and the tax charge must be paid by whoever earns the high salary via a self-assessment tax return.

The tax charge equates to 1% of the child benefit paid for every £100 of income over £50,000 with all benefit lost when a parent’s taxable income reaches £60,000.

So say your income is £56,000 and you have one child, as you are earning £6,000 over the threshold you will need to pay 60% of your child benefit back as a tax charge or £1099.80.

Need help with your tax return?

Send your tax return to HMRC using the service provided by GoSimpleTax.

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3. Child benefit can help build National Insurance credits

It’s worthwhile filling out the paperwork for child benefit as it can help you build up National Insurance (NI) credits.

If you take time out from work to look after children, you could end up short on the 35 years' of NI contributions you need to qualify for a full state pension.

But if you claim child benefit, you receive NI credits that count towards your state pension, until the child hits the age of 12.

With this in mind, it's worth signing up for child benefit if you're staying home to care for children, even if your partner earns more than £60,000 a year.

When you submit a child benefit claim, you can mark a tick box on the form and choose not to receive payments. This will ensure you receive National Insurance credits, but won't receive or be taxed on any money.

If you've missed out on National Insurance contributions as a result of not claiming child benefit, you can still fix the gaps in your record by making voluntary Class 3 contributions.

Find out more: National Insurance rates and information on voluntary Class 3 contributions

4. Pension contributions could boost child benefit payments

When calculating how much child benefit you have to repay via the tax charge, it’s your 'net-adjusted income' that is taken into account.

Your net-adjusted income is what you have left after other deductions from your salary, including pension contributions.

So if you are a parent earning between £50,000 and £60,000, by making higher deductions via pension contributions you can reduce your net-adjusted income which can reduce your high-income child benefit tax charge and therefore increase the amount of child benefit you'll receive.

For example, say you have one child and earn £55,000 a year, but you make pension contributions of 3%. Your net-adjusted salary is £53,350.

On a salary of £55,000, you'd pay a tax charge of £533, leaving you with £533 in child benefit. But with your adjusted salary of £53,350, you'd pay a tax charge of £357.11, leaving you with £708.89 from the benefit.

Find out more: tax relief on pension contributions explained

5. An ISA could help you beat the high-income benefit charge

There is another way for higher earners to pay less tax on their child benefit payments.

The net adjusted £50,000 income threshold also takes into account things like taxable interest from savings.

With rates rising it's likely you will be earning more taxable interest than previous years which could impact the tax you pay on child benefit.

So if you or your partner earn between £50,000 and £60,000, moving your savings into a tax-free wrapper such as an ISA can lower your taxable income from savings to avoid or reduce the charge.